Let's talk credit: 5 ways the pandemic has changed how you access it

Thanks to sites like TPG, award travel has grown from a niche hobby to a strategy leveraged by millions of people around the world to enjoy trips for far less than the actual retail cost.

This massive growth coincided with banks spending heavily to expand their credit card portfolios and acquire new customers.

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In 2020, as the pandemic took hold, all of that seemingly changed overnight.

Not knowing exactly what would come next, issuers pulled back on approvals. And consumers weren't nearly as interested in new cards. In fact, the New York Fed found that just 15.7% of U.S. adults applied for a credit card over the twelve months ending in October 2020. Prior to COVID-19 arriving in the U.S., the figure was 26.3%.

Now though, recovery is in sight. Industry experts say those approval rates are coming back up for some applicants and will be reflected in the next Fed survey release in mid-March.

As we crawl out of the depths of the pandemic, there are still ways the past year has altered how we can access credit. Here are five ways it has.

Card applications down, rejections up

If you're using your credit cards responsibly in the pursuit of travel rewards or cash back, it means you aren't carrying a balance from month to month.

This means you're not paying any interest, which can compound quickly and can easily erase the value of rewards that you might earn. However, to credit card issuers, each new account they open is a risk: if you rack up bills, lose your job and default on your payments, the banks stand to lose money.

Related: Issuers have cut credit limits, but here’s what you can do about it

Over the past year, issuers have decided to decrease their overall risk and exposure, and one of the easiest ways to do this is to make it harder for new customers to get approved for credit.

The New York Fed found a rejection rate amongst card applicants of 21.3% in the twelve months ending in October 2020, up from 9.7% in February 2020. In other words, card applications were down by almost half while rejections more than doubled.

These changes aren't advertised to the public, but the minute the economy slips into a recession, as it did last year, you can rest assured that banks will be tightening their approval standards.

The takeaway here? Be judicious and only apply for cards where you have a very good chance of approval. Having a previous history with the bank likely doesn't hurt. You can potentially improve your odds of success by using a tool such as CardMatch to evaluate your odds and available offers before applying.

Higher credit score cutoff

While a credit score isn't everything for card approvals, it's a significant factor alongside income and debt load.

Related: How credit scores work

Ted Rossman, an industry analyst for Creditcards.com and Bankrate (owned by TPG's parent company, Red Ventures), says that "the typical cutoff these days is around 720, whereas a year ago you could have gotten most credit cards with a score of 670 or better."

Experian says the average American has a 711 credit score.

"The sharpest pullback has been in issuing balance transfer cards, because by definition, those appeal to a riskier audience -- people with existing credit card debt," Rossman noted.

Related: What credit score do you need for Amex cards

Reduced credit limits (but it's now improving)

Banks have also looked to limit their exposure from existing customers. With decreased consumer spending, people are less likely to use all of the credit available to them. Card issuers will often review accounts and decrease the credit limits of their existing customers.

However, by Q4 2020, that has started to improve. Just take a look at the data from the Federal Reserve's Senior Loan Officer Survey.

Related: When is it time to ask for a credit limit increase?

In Q2 2020, 60% of banks tightened credit limits while 0% eased them. In Q3 2020, that improved to 24% of banks tightening limits with 4% easing. And by Q4 2020, only 9% of banks continued to tighten limits while 15% begin easing them.

Clearly, there's some light at the end of the tunnel.

The logic here is quite sound for reducing limits, though: If you're using all of your available credit at a time when most people are cutting back on spending, it might signal that you've lost your job and are struggling financially, exactly the kind of behavior banks are looking to shield themselves from.

Overall this isn't a practice you should be too concerned with, though it might cause your credit score to drop a bit.

The less total credit you have available to you, the higher your utilization ratio will be. This factor accounts for 30% of your credit score, though if your spending also decreases now you won't see much of a change.

Related: 6 things to do to improve your credit in 2021

Fewer balance transfer and 0% APR offers

While carrying a balance is bad for you as a consumer, it's a great way for credit card companies to make money.

In the past, many issuers offer free balance transfers on certain cards or cards with a limited time 0% APR rate. These can be a great strategy to help tamp down your interest payments while you get out of debt, but card issuers are obviously hoping you'll continue to carry a balance once the promotional period has expired.

Related: Credit card debt: Everything you need to know

During the pandemic, defaults were on the rise, meaning the idea of taking on additional debt to make a profit suddenly becomes a huge risk for banks. Fairly early last year, Chase removed its balance transfer Chase Slate card from its website and stopped accepting new applications.

The information for the Chase Slate has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.

If you were relying on a balance transfer or 0% APR card to pay off your credit card debt, you might have a tougher time doing so. Instead, you can focus on one of the classic debt payoff strategies.

There's the "snowball" method where you attack the smallest balance first, and then once that's paid off, roll that payment into the next smallest balance. Alternatively, there's the avalanche method where you attack the highest interest debt first.

More targeted advertisements and mailers

In January and February 2020, before the pandemic really took hold in the U.S., banks were mailing out over 300 million credit card offers a month according to a report by the Wall Street Journal. By May, that number was down over 75% to just 74 million.

Related: Why banks are struggling to assess creditworthiness during the pandemic

With issuers focusing more carefully on only approving safe and creditworthy applicants, widespread advertising such as mailers has fallen off. However, they have bounced back in recent months on a more targeted basis. Additionally, large-scale limited-time welcome bonuses have returned.

Bottom line

Credit, in all its forms, has become a huge liability during the pandemic. In an unstable financial environment, many people lose the ability to pay back their debt, and that can result in massive losses for banks and financial institutions.

2020 saw a massive pullback from card issuers as we saw a number of ways that made it harder for people to access credit.

However, there's lots of good news and reasons to be excited about the future. Elevated sign-up offers and welcome bonuses have returned with a vengeance and increased investment from issuers for new card acquisition (instead of just retaining existing customers) bodes well for the future of cards and card rewards.

Related: The 12 best elevated credit card offers to sign up for in March

Additional reporting by Ethan Steinberg.